National Savings & Loan Ass'n v. Gillis

• Decision Date: 12 September 1929
• Docket Number: No. 1493-1495.,1493-1495.
• Citation: 35 F.2d 386
• Parties: NATIONAL SAVINGS & LOAN ASS'N v. GILLIS, Atty. Gen. of Idaho, NEW WORLD LIFE INS. CO. v. SAME. VERMONT LOAN & TRUST CO. v. SAME.
• Court: U.S. District Court — District of Idaho

35 F.2d 386 (1929)

NATIONAL SAVINGS & LOAN ASS'N v. GILLIS, Atty. Gen. of Idaho, NEW WORLD LIFE INS. CO. v. SAME.

VERMONT LOAN & TRUST CO. v. SAME.

Nos. 1493-1495.

District Court, D. Idaho. S. D.

September 12, 1929.

COPYRIGHT MATERIAL OMITTED

Alexander Winston, of Spokane, Wash., and Hawley & Hawley, of Boise, Idaho, for plaintiff National Savings & Loan Ass'n.

Oliver O. Haga, McKeen F. Morrow, J. L. Eberle, and Richards & Haga, all of Boise, Idaho (E. D. Ham, of Spokane, Wash., and Martin & Martin, of Boise, Idaho, of counsel), for plaintiffs Vermont Loan & Trust Co. and New World Life Ins. Co.

W. D. Gillis, Atty. Gen., of Idaho, and Fred J. Babcock, Asst. Atty. Gen., for defendant.

Before DIETRICH, Circuit Judge, and NETERER and CAVANAH, District Judges, as a statutory three-judge court.

CAVANAH, District Judge.

These three cases, which involve the constitutional validity of the act of the Idaho Legislature, passed at its 1929 session, were presented at the same time and will be disposed of in this opinion.

The plaintiff National Savings & Loan Association is organized under the laws of the state of Washington, and its business is that of a mutual savings and loan association, with its principal place of business at Spokane, Wash., and loans its money only to its members upon first mortgages on real estate. In 1922 it complied with the laws of Idaho in regard to entering the state, and has paid the required annual license fee of $150, which authorized it to transact business in the state, and it designated Bonner county, where it has a resident agent, as its principal place of business in this state. It has no other investments than the loans it makes to its members, except the sum of $10,273.10, invested in bonds of municipalities of the state of Washington. Under the laws of Washington it is forbidden from carrying any demand, commercial or checking account, and from receiving any savings or sums of money on deposit, without issuing shares of stock for the same. There are now in Idaho about 13 domestic building and loan associations of the same type and character as it, who are in direct competition with it in the making of loans, and who are exempt from taxation under the laws of Idaho. Of its 13,000 shareholders, more than 98 per cent. are residents and citizens of the state of Washington, and possess their stock in that state. It has about 100 loans made upon property in different counties of Idaho, which it alleges cannot be sold without sustaining a loss of more than $50,000. Through its representatives it has built its business in the state in making loans, and if the tax is required to be paid it will sustain a great loss, as it has no means of withdrawing from the state without waiting the maturity of the loans, which run from five to seven years. The loans were made by different loaning agencies of plaintiff in different parts of the state, who receive from persons or companies applications therefor, and which are filled out by the applicant on a blank furnished by plaintiff. The applications are then forwarded to it at its main office in Spokane, and thereupon its representative goes to Idaho to examine the property upon which the loan is made, and, after making an examination, if he believes the loan should be made, his recommendation then goes before its board of directors for action, and, if approved, notice thereof is sent to the agent in Idaho, who is termed as agent of the borrower, who then secures an abstract of title to the property and forwards it to the Spokane office for examination, and all necessary papers thereafter used in completing the loan are sent to the agent in Idaho, who then closes the transaction.

The plaintiff New World Life Insurance Company is a Washington corporation, and is primarily engaged in the life insurance business. A portion of its premium receipts and money from other sources is invested in mortgages, bonds, and other securities in Idaho and other states. Its investments in Idaho aggregate $1,000,000. Under section 4996 of the Compiled Statutes of Idaho it pays an annual tax of 2 per cent. on all premiums received on business transacted in Idaho. During the past 15 years it has been authorized to do a life insurance and loan business in the state. It is required to designate the commissioner of finance of Idaho as its attorney upon whom all processes in any action against it may be served. Its aggregate loans in Idaho are over $790,000. There are about 13,000 stockholders, nearly all of whom are nonresidents of Idaho. The means adopted in making the loans are similar to those of the National Savings & Loan Association, excepting that none of its representatives in the state has any authority to make or approve loans, as that is done through its office at Spokane.

The plaintiff Vermont Loan & Trust Company is a North Dakota corporation, having its main office also at Spokane, and for about 35 years has been engaged in the business, conducted at its office in Spokane, of loaning money on real estate, both on its own account and as agent for other companies. Nearly all of its stockholders are nonresidents of Idaho, and it has made mortgage loans in Idaho, for itself and as agent for other companies, aggregating in amount $500,000. The city of Moscow, in Latah county, Idaho, where its statutory agent resides, is its principal place of business in the state, and it is in all respects similar to its offices and business maintained and transacted in other counties of the state. Its business is carried on in the state in substantially the same manner as that of the plaintiff New World Life Insurance Company.

The act of the Idaho Legislature in question is chapter 252 of the Session Laws of 1929, and it requires all foreign corporations or associations incorporated under the laws of any state, and licensed to do business within the state, which use their capital in competition with moneyed capital invested in shares of stock of any national or state banking association, or building and loan association, or any other assets or capital which has been held by the courts to be competitive capital with the invested capital of shareholders of any bank doing a loan or investment business, shall pay a tax upon the shares of their capital stock, the value of which is fixed by the proportion of their invested capital located in the state, and exempts from its operation all like building and loan associations organized and engaged in such business under the laws of Idaho.

At the time these plaintiffs, which are companies incorporated under the laws of other states, entered Idaho, and until the adoption of the 1929 act, all stock of foreign and domestic building and loan associations were exempt from taxation, and the adoption of the 1929 act has caused these plaintiffs to challenge its constitutionality upon the grounds that it violates the due process and equal protection clauses of the Fourteenth Amendment to the Constitution of the United States, and deprives their stockholders of privileges and immunities guaranteed to them by the Fourteenth Amendment, and violates sections 2, 5, and 12 of article 7, and section 6 of article 18, of the Constitution of the state of Idaho.

To answer satisfactorily the questions thus presented, it is necessary to consider the pertinent provisions of the act respecting the tax upon the shares of stock of foreign companies, and the methods of enforcing the same. By its terms shares of capital stock of any bank or other corporation or finance company organized under the laws of the state, excepting building and loan associations, shall be assessed and taxed in accordance with the provisions of article 12, chapter 144 (sections 3297-3303), of the Compiled Statutes of Idaho, which provides for a tax upon such shares of stock, and any foreign corporation or association licensed to do business within the state, and engaged in or which uses its capital in competition with those stated, shall, on or before the first Monday of June of each year, file with the assessor of the county in which its principal place of business is located within the state, or, in case no principal place of business is designated in the state, then with the assessor of the county of its resident agent, a statement substantially in conformity with the provisions of section 3298 of the Compiled Statutes of Idaho, and show therein the total amount of its investments and loans made within and without the state. It then shall be the duty of the assessor, upon receipt of such statement, to assess such shares of capital stock according to the ratio that its investments and loans within the state bear to its total loans and investments, making the same deductions therefrom as are provided for in section 3297 of the Compiled Statutes. The foreign corporation and association shall then pay the tax upon such shares of stock, and the procedure for the assessment of the same, the entry on the personal property tax rolls, and the collection thereof shall be in compliance with the provisions of article 12 of chapter 144 of the Compiled Statutes. It is then made the further duty of the county assessor to notify the Attorney General of the state of a failure of any such foreign corporation to comply with the act, who shall then bring an appropriate action in any court having jurisdiction for the forfeiture of the right of such corporation or association to do business within the state, and upon proof thereof such right shall be forfeited and its license canceled, and any loan or contract made by it, after such forfeiture, shall be null and void. The further provision is made that any other moneyed capital within the state, which is or may be in substantial competition with capital invested in the shares of capital stock of banks, and for which no other provisions have been made for the assessment and collection of taxes thereon, shall be assessed by the assessor in the...